Monday, January 30, 2012

Foundations of Civilization-What About China?

Let's ponder the foundational elements of a lasting modern and advanced civilization and see how China is doing on each aspect.   In doing so, we'll test the currently popular assumption that China will overtake the US in the coming decades--which may or may not be true.    I'm certainly not a China expert, but I'm more familiar with the failures of communism and central planning.   So, with that caveat, I'm taking a stab at rating the USA and China on major elements of civilized societies on a scale from one to ten where 1 is lowest.

Here's my brainstorm list of what I believe to be essential features of modern society and where China stands on them:
  1. Rule of Law- a long standing constitution or written legal code based on an ethical and a moral value system.    China has a constitution but it establishes the communist party as the ultimate authority.   Rule of law is corrupted/changeable because the communist party is corrupted.  And the communist party is corrupted because there is no real democracy (see below).  Therefore there is little consistent rule of law or even human rights (also see below).  China 2, USA 8 and declining
  2. Human Rights. Basic human rights is a natural follow-on from the Rule of Law and a moral and ethical tradition.  (For instance, law in the West naturally springs from the Judeo-Christian traditions).   China is officially atheist, forbids religious practice, and places the state as "God". There is nothing like a Bill of Rights in China (or anywhere else).  Everyone knows that human rights is a disaster in China.  China 1, USA, 9
  3. Property Rights-laws to protect people's legal ownership of homes, land, intellectual property and property.  My understanding is that China doesn't yet have property rights like we're accustomed to in the West but is making movement in this direction.  Local communist party officials are still regularly seizing homes and property for their own benefit.  There is no recourse except protest with a hope to garner media attention.  Everyone has heard about frequent protests in China and seized property is a common reason.  Another reason for protest is corruption and malfeasance by local communist party leadership.   China 3, USA 9
  4. Free market enterprise as the predominant type of economy as opposed to mostly government led enterprise.    China is a company masquerading like a country.  The truth is that most of China's economy is centrally planned with the government throwing money at any and all projects regardless if there is true economic justification or not.  We will eventually learn of massive capital mis-allocation and bad loans in the banking system.  China's private sector is doing well and making big strides until the latest financial crisis.  China may be the epicenter of another financial crisis in the years ahead.  China 5, USA 8 and declining
  5. Specialization of labor is the key to advance civilization.  China is doing well and trying to revamp their educational system.   China 7, USA 9
  6. Democracy in Government (local and national) is essential to avoid serious conflict in the society.  Elections give voice to the people especially in conjunction with advanced educational systems and a free press.   China?   Forget about it!  China 2, USA 9
  7. Capital markets and transparent information. Money and credit is the way businessmen can form new businesses and grow the economy and take care of the needs and wants of the population.   When there is an open exchange for trading shares, then it's incumbent on public companies to provide material information that affects share price.   In China, publicly traded stocks experienced a burst bubble and is now viewed to be highly corrupted.  The Shanghai composite is off over 60% from the bubble peak.  Financial information reported by a Chinese corporate concerns is suspect.   The government itself lies as necessary.  There is nearly a complete moral vacuum in China.    China 3, USA 7
  8. Free press and Internet is essential to uncover corruption, exchange of ideas and communicate important information.   China?   Forget about it!   China 2, USA 8 and declining
  9. Relatively homogeneous people  Present day China resembles an empire and encompasses many different ethnic and religious groups.  Even in recent years, many people have been killed by the  Chinese military in quelling unrest by these disparate groups yearning for rights and recognition.   China 5, USA 8
  10. Functioning government to support courts, defense, schools  China is all about government control and is organizing society pretty well.    China 8, USA 8
  11. Infrastructure-roads, bridges and airports for transportation and movement of goods  Any country must be able for people and goods to move and have access to import/export markets.  China 4, USA 10
  12. Agriculture and/or natural resources A country must be able to feed itself or trade something that it has in order to buy food.  China is rich in agriculture and natural resources, so that's good for them   China 8, USA 9
  13. Advanced Educational System to at least a junior high school level    China 8, USA 7 and declining
Score:  China 58, USA 109

So, on thirteen measures of foundational elements of modern civilization, China rates poorly on many.  Although the US rates highly on most, on many measures the US is in decline due to such things as increasing government interference in the economy and the media has increasingly become politically biased toward liberalism (the President himself attacking the only "opposition" media such as Fox News).  There has also been a decline in moral values in America reflected in crony capitalism, the widespread fraud resulting in the collapse of the sub-prime mortgage market in 2007, corruption in corporations and in government.  Business bashing by the current administration is disturbing as free market enterprise has been a remarkable success in the vast majority of American history.  That's hardly a complete summary.

China may be rising but it may not last unless reforms continue in many of the basic areas.  The lack of democracy is one of many things that could be their downfall.

    Wednesday, January 25, 2012

    Obama---Teleprompter-Reader-in-Chief

    I'm not going to comment anymore about Obama.   He's so clearly just a "talking head" reading a teleprompter that he's not even worthy of serious comment.  Nearly everything he says sounds ok but the government---his government---is doing the opposite.  There is no credibility in anything he says.   He talks about expanding energy exploration in this country but he's been the most hostile to the energy business of any president EVER.   He's always lambasting fat cats (mostly Wall Street banker), but why is no one in jail for malfeasance?   He talked about reducing regulation but his EPA is out-of-control and his NLRB is stifling business for no reason.  His administration is all about increased regulation!

    He harps on "fairness" but doesn't have his facts straight or his math correct.  As I've said before, the rich pay the lion's share of the taxes (the top 10% pay 70% of the taxes), so I don't care to hear again and again about someone not paying their fair share--it's bullshit.

    Buffet's and Romney's tax rates are unusual.  From the data, the top 0.1% of income earners pay, on average about 23% of their income in taxes in the past 10 years.   The top 1% pay slightly more on taxes--running about  24%.  The group between 10 to 50% income group only pay on average 7 or 8% income tax.  The bottom 50% pay no taxes or even have NEGATIVE taxes---many receiving checks from the government and no taxes.  Who's not paying their fair share?? 

    If Obama wants to impose a minimum tax of 30% on the very wealthy, then where's the bill for Congress's consideration?    Send a bill to Congress!   I'm tired of hearing the rhetoric.  If you don't like the tax code, then compose a legislative bill to change it!  Send it up for a vote!   He won't send a bill because it will not pass--as there needs to be comprehensive solution to taxes, tax rates, deductions and measures to promote growth.

    Obama's singular solution is to tax the richest at 30%.  But it will barely help.   Since the wealthy top 1% already pay 24%, the added 6% of revenue might amount to about $80 billion ---a drop in the bucket compared to a $1,400 billion deficit.   His simplistic approach is only floated for populist appeal.   He must know that the math doesn't add up?

    What's needed is a summit at the White House with all the tax and budget experts from both sides of the political aisle to talk about spending cuts, adjusting tax rates and deductions with the idea of collecting more revenue and spreading the tax burden.   There are too many deductions.  The biggest burden falls on the wealthy, whereas the top 10 to 50% income group only pay on average 7 or 8% income tax.  That's not really fair.  The bottom 50% don't much at all.    If we had a rule that only those that paid taxes were allowed to vote, then we might be talking about good governance.

    It's spending that's out of control.  Also, re-establishing normal growth rates will reduce the deficit.  On this latter point, the Obama administration is a failure since his every solution to economic growth problems runs through Washington D.C.--which means it will not work.

    Saturday, January 21, 2012

    Keystone Pipeline Insanity

    Obama had better get some new advisors.   How can his absurd distaste of carbon based energy lead him to such a ridiculous decision? Surely this project will be approved??  Environmental reasons for not approving it are just a canard for those hostile to the project.  The US has 600,000 miles of pipelines including liquid product pipelines.  Nebraska already has a large number of pipelines throughout the state.  
     
     
    We've managed to snub yet another staunch ally, we've stopped the only real "shovel ready" interstate project on the books, we've stopped job creation in the construction of the line and modifying the gulf coast refineries, we'll be sabotaging a secure energy supply for our country and benefiting China who will ultimately receive the oil.   Canada will continue to develop the tar sands regardless of what the environmentalists want. 
     
     
    The reality, which this administration can't seem to stomach, is that carbon-based oil and gas energy will remain the vastly dominant energy source for the world far into the foreseeable future.   Yes, there will be small in-roads by alternative fuels and energy but they will remain highly marginal for decades to come even with a breakthrough in solar design/manufacturing.   (I hope there is a breakthrough but solar will always be a 6 or 7 hour per day producer which limits it's impact.  You see, solar cells don't produce much before 9 am or after 4 pm  in the summer and much less in winter and at higher latitudes)  


    The global warming issue has been politicized and is now hurting people--with the administration canceling power plant construction permits and the Keystone pipeline project.

    Sunday, January 15, 2012

    Signs of Movement From Burmese Dictators

    It's nice to see some signs of progress toward some limited freedom in Burma.  John McCain visited Burma  in June of 2011 just after the ruling Junta installed a semi-civilian government.  In recent news, about 750 political prisoners were released and Secretary of State Hillary Clinton visited government officials and Suu Kyi .  Finally, I see where the government has declared a cease-fire in their 60 year old civil war against the Karen people.  

    Several articles of interest regarding the tentative Burma political reforms 

    Here are a couple of articles about Burma, from the Ottawa Citizen; about why the recent reforms reflect weakness in the regime.   In a thoughtful article from The Diplomat Don't Forget the Children In Burma, reminds the world and surrounding regional countries to ease restrictions on the immigration and education of displaced children from Burma.  Burma is going to need huge numbers of new teachers if reform continues.  Maybe I'll go!

    The Karen Educational Center in Bangkok

    Any progress in lessening pressure on the Karen people (an ethnic minority in Burma persecuted  by the Junta)  are of particular interest to a few of us connected with these people--the ones who have managed to flee from Burma to Thailand.

    My friends Tommy and Al are teaching Karen children in Bangkok in a small school funded only by a few of us, our friends and friends of friends.  Please visit their webpage Karen Educational Center and help them/us to continue to instruct these great young adults!  The curriculum consists of several levels of English, Thai language and IT skills.  There's a link to donate to the effort on the webpage.  A little goes a long way and the money is needed and appreciated.   All of us who have met these kids and young adults are very touched and impressed by these great young people.   It would fantastic to see Burma become a respected member of the international community and extend freedom to all of their people.


    Monday, January 9, 2012

    How to Fix the USA-Part 3: Promoting Growth

    In the last blog entry, I indicate that promoting economic growth could substantially help overcome the government deficits that constitute an unsustainable and growing fiscal crisis.  This is not going to be easy.  It's possible that tax collections from individuals are going to be lower than average for a long time and gov't deficits large for the foreseeable future.  

    I've indicated in the last blog Fixing the USA Part 2-Cutting Government Spending that Gov't spending can be curtailed as I discussed.  Also, corporate taxes can be reformed to lower top rates, improve the effective overall tax rates and increase collections.  Tax collections can be increased from individuals by removing most or all deductions with the current tax brackets.   It simply must be done even if it triggers a mild recession.  Remember government spending dropped from over 50% to 11% after World War II and it didn't trigger Armageddon; there was a boom (after a recession)!

    After a long period of personal debt accumulation, debt saturation and even debt revulsion, there is going to be a long period of de-leveraging by the public leading to overall slack demand.   This pattern is occurring elsewhere in the world as well. This means that export markets are going to be sluggish as well.  Governments, trying to compensate for loss of demand, are spending but reaching or exceeding their debt saturation level in most developed nations.  Government spending is wasted money with no long term gain or return on capital.

    There is also a demographic drag on growth in the US as baby boomers age, retire and spend less.   China continues to steal jobs out of America (and most other countries) by playing unfair with their trade practices and maintain their currency undervalued vs. the world.

    But the US has several secret weapons and one is it's ability to attract foreigner to come live here.   We need more taxpayers to overcome our demographic drag!  We need and can lure highly qualified immigrants to  fill technical jobs, buy houses, and buy furniture and appliances to furnish those houses. More population means more GDP growth. 

    To promote growth, government must establish stable rules--not subject to constant change or threat of change.  This is a major negative of the current administration--threatening increased taxes, actual regulatory over-reach, insulting business leaders, bringing forward half-baked laws like Dodd-Frank and Obamacare that are poorly written, rushed, poorly considered, incomplete, too complicated and too expensive.

    Here's a list of possible growth improving ideas:
    1. Give qualified immigrants 10 year visas/green cards to come to work here.  Expand quotas especially of entrepreneurial Asians, South Asians, East and Central Europeans, Chinese and Taiwanese.  Actively court Masters and Doctorate graduates by interviewing and offering residence and work permits.  We need more taxpayers!  We need more business creators---the old ones are dying off.
    2. Give qualified immigrants a chance to buy an existing house (not new) if they can find work and make payments.   We have a housing glut and, if foreigners will come here, find employment and buy a house,  it will stabilize the housing market.  Stabilizing housing by creating demand for housing will markedly improve the economy.
    3. The shale energy boom is underway without any government help--as it should be.  So much gas is being unlocked that Cheniere Energy has embarked on a project to export billions of cubic feet per day of gas as LNG!   The USA is exporting more refined oil products as well.   North America has increased oil production this past year, has much higher gas production and reserves and the trend looks to persist.  This is one of the few areas of the economy adding jobs. 
    4. Along those lines, the US needs to finally allow exploration of the most promising areas of Alaska including ANWR, and extend leasing in both US east and US west coasts.  Offshore California (in Federal waters) is probably another North Sea of oil/gas, so how can we not take advantage?  We can't allow an individual state to block access to the people's resources!  Additionally, our oil imports constitute a chronic balance of payment problem as well as a national security issue.   Increased exploration means more jobs,  reduces our trade deficit/ balance of payments and increases our national and energy security.
    5. Promote conversion of trucks to natural gas and displace about 2 million barrels per day of imported oil.  That alone will nearly eliminate our oil purchases from OPEC countries.
    6. Allow the Keystone pipeline construction to go ahead to create jobs and secure reliable energy from Canada.  If we don't import Canada's oil, it will go to Asia.  To not allow this pipeline hurts the jobs market, snubs our best ally, and hurts the improvement of our energy security.  The administration and it's many environ-maniacs are seriously off-base on this issue (and so many others).
    7. In select markets, try fleets of natural gas buses and mini-buses to augment transit systems in select markets.  Increase the number of buses so that a bus comes each 3 to 5 minutes. In this way,  people will take the bus.  Expand mass transit infrastructure to reduce automobile use. 
    8. Increase tourism!  We have a great potential to increase the number of tourists visiting our nation but immigration and customs are completely unfriendly---even rude and insulting.  TSA is a joke.  We've alienated millions.
    9. Threaten  China with import tariffs if they don't let their currency float (?).  This will bring them to the negotiation table.  This point may be becoming mute as they are already suffering from their undervalued currency, so it has a tendency to self-correct by spurring rising prices there and reducing their advantage.  Also, there are many other currencies soft-pegged to the dollar where they maintain a surplus with the US.
    10. Voting out the current administration will be the biggest promotion to growth of any single idea.  There may be "pent up" demand by individuals and from the business community who will be happy to see Obama out of office.  The ridiculous hand-wringing and "gnashing of teeth" of the current administration regarding any carbon based energy is causing them to halt new power plants and halting such projects such as Keystone pipeline.  There is an absurd hostility to business in general and a ham-handed under-appreciation of how jobs are actually created.  What do you expect from a bunch of academics??  Yes, there have been bad actors in the banking business, but why is no one in jail?   Why is there only empty rhetoric that insults mostly innocent working/business people?  

    How to Fix the USA-Part 2: Cutting Government Spending

    The USA has a fiscal crisis, in part, because total taxes collected has collapsed with the economy (with the loss of jobs) but also because the government spending has rapidly accelerated under the Bush and Obama administrations.

    Therefore to solve the fiscal crisis, the government must promote growth and employment and restrain spending.  If the economy begins to grow at an average rate, then total taxes collected will increase and solve about 40% of deficit (approx).  It's spending that s truly out of control--this everyone knows.  Sharp spending cuts in most categories of government expenditures including military spending must be "on the table." 

    Here is my list of spending and tax reforms that would reduce the near and medium term Federal deficits:

    1. Pro-growth policies will help in the medium term.  Such policies would include less regulation not more, more energy not less, more conventional energy not pie-in-the-sky alternatives, more power generation not less, less threats of rule changes not more, competent regulation not incompetent, lower employer costs not more, less fear of fiscal calamity not more!
    2. Medicare and Social Security need to be means tested now.   If you're very well-off, you don't need the benefits.  
    3. Reduce or eliminate all tax deductions.  Why subsidize well-off people with their mortgage payments?
    4. Corporate tax reform to lower top brackets but less deductions to collect more revenue.  Corporations should pay more tax but the top rate should come down. 
    5. The defense budget, and the entire budget, need 10% across-the-board cuts.  This includes Social Security and Medicare if item #2 doesn't cut enough.  Alternatively, roll back spending in each category back to 2007 category levels.  
    6. We don't need troops in 140 countries!   What part of the phrase fiscal crisis do we not understand??
    7. Federal employees salaries need a 10% cut and reduce benefits which have ballooned beyond all reason, (see next item below).  
    8. Federal workers make far more than private sector workers now--when you include benefits.  From USA Today:    Overall, federal workers earned an average salary of $67,691 in 2008 for occupations that exist both in government and the private sector, according to Bureau of Labor Statistics data. The average pay for the same mix of jobs in the private sector was $60,046 in 2008, the most recent data available.
      These salary figures do not include the value of health, pension and other benefits, which averaged $40,785 per federal employee in 2008 vs. $9,882 per private worker, according to the Bureau of Economic Analysis.   Can you say CUT THE FAT???   State and Federal employees costs have risen well beyond those in the private sector.
    9. The Federal Government must schedule an end (soon) to the unlimited support ($100's of billions) of Fannie Mae and Freddie Mac. Sell off both.  Yes, mortgage rates would rise to cover the cost of foreclosures but it would finally force housing prices to bottom.  The market would normalize sooner than later.
    10. The Federal Government doesn't need to be in the student loan "business" either.  Student loans are now so huge and burdensome to students, that they will be next debt bubble to burst and become a drain on taypayers.  What are banks for if not for making loans to families?  
    11. The Federal Government needs to be gutted by eliminating entire departments.   Many departments of the government are completely incompetent and ineffective.   I propose eliminating the Dept of Education, Dept of Homeland Security, TSA,  Dept of Agriculture, NLRB (National Labor Relations Board), Dept of Energy, HUD and other housing programs. 
    12. To cut public employee costs, kill defined benefit plans for public workers and scrap Davis-Bacon and all prevailing wage laws for public workers.  Markets work!  Public projects cost much more than they should and the related gov't bureaucracy is even more costly.   One dollar more spent on project labor compared to a market rate is ripping-off taxpayers! 
    13. A total housecleaning and downsizing of the SEC since it is completely useless organization.  They can't do anything or get anything right!  When has the CIA gotten anything right?  Was it in your lifetime?
    14. Eliminate agricultural subsidies.  Agricultural subsidies are huge--up to $30 billion per year primarily to large corporate farms--for what reason?  Subsidies were originally intended for small farms.  Horrible!, 
    15. Eliminate AMTRAK subsidies and cancel most foreign subsidies starting with eliminating subsidies to Pakistan!  
    16. We must bring our foreign wars to an end.  Sorry folks, we don't have the money!  And we shouldn't burden our children!   A balanced budget amendment to the US Constitution should dictate that taxes must be raised to fund wars.  Once passed then, if we stay in Afghanistan, then a special tax must be raised to cover the cost! 
    17. A balanced budget amendment to the Constitution or a Federal law to that effect. Pay for wars.
    18. Cancel Obamacare since it's going to cost infinitely more than what was promised.  Instead, Congress should take the many steps known to reduce costs and reform insurance.  Steps include expanding health care savings plans so people need only to purchase high deductible/high out-of-pocket policies, limit medical care malpractice suits, etc.  Sorry ladies and gentlemen, but the government can't spend more money on health care (or force states to spend more on Medicaid) in the middle of a fiscal crisis!  We don't have the money!    Get real people!
    19. Privatize, privatize, privatize!  Privatize the Federal highways and Post Office? 
    Ok, we're running too long.  I do invite your ideas on reducing government costs.  Remember, I'm an ordinary citizen and not an expert in these matters.  These ideas are food for thought.

      Sunday, January 8, 2012

      How to Fix the USA-Part 1: Fixing Corruption

      Here's my attempt to list a series of reforms to rectify the USA's ship of state.  Most of these ideas listed below are from other people.  Some of them might even be good ideas!

      It feels increasingly that everything in America is compromised with corruption and it's getting worse.  I believe that one maxim to rely on is "where there is corruption there is an absence of democracy. Conversely, where there is the fresh air of democracy, there is less corruption"  Therefore improving democracy should help fix the corruption problem in government and corporations.  Corrupt officials reflect the decline in morality of the American people.  To some extent, our current recession/depression is a moral collapse (fraud at every level).  To reduce corruption, then we need better education, better parenting and better discipline for people.  In short, we need a better culture but that's another chapter in this series.
      1. Ban all money donations to politicians--penalty for violations is immediate impeachment.  All Federal level campaigns should be paid with public money (taxpayer money).  Each candidate should get the same amount.  No peddling of influence while in office either!  Lobbyists must not be able to give money to campaigns or congressmen.
      2. Congress must be subject to all national laws that everyone else is subject.  For example, insider trading is currently legal for congressmen!  How obscene is that?  
      3. Terms must be limited.  Democracy is not working well enough (as our founders intended).  Special interests have become entrenched.  Two terms seem enough and no more.   Allow democracy pick someone new (without the influence of special interest money--see item 1.   The goal here is to bring the fresh air of democracy rather than the stale air of career politicians.
      4. Reduce Federal government spending and reduce the size of government.  Big Government by definition means Big Corruption. It always has and always will.  Nearly all Federal programs become hugely corrupted---especially redistributive programs like Medicare.  The solution?  Keep Federal government small!  It's what was clearly intended by the founding fathers, the Constitution and most of American history.
      5. Reduce the Federal Government spending back to 18% of GDP or less, to reduce the size of government per Item 4.  Eighteen percent would more closely match revenue and lead to nearly balanced budgets.  In reality, the US should be running surpluses to pay down debt!  Tax revenue needs to rise while spending must be radically reduced.  What could be more obvious?
      6. American corporations have become corrupt and need an injection of shareholder democracy.  Executive pay increases have been out of control for decades--a sure sign of corruption!  Solution: shareholders must approve executive pay packages including stock options, etc.  Major investors like public pension funds must be on the Boards of Directors-by law.  We need new ideas to increase shareholder democracy.
      7. Devolve as many Federal government functions to the State level (again as intended by the Constitution and the majority of US History)   US states are much better run and accountable to the people.  US State governments actually work (as opposed to Fed. Govt)
      8. Federal Balanced budget amendment seems promising.  After all, most US states have balanced budget mandates.  Wars must be funded with new taxes as long as they persist.  War must be approved by Congress as the Constitutions require. 
      9. Comprehensive Qualification exams for candidates?  Candidates should know about US history, economics and take qualification exams.  No pass=no candidacy.
      10. Bring back a Glass Steagal and/or implement the Volker Rule.  Break up the big banks into regional retail banks and ban "hedge fund" activities by the banks.  Investment banking ("Hedge fund "activiities) must be spun-off, outlawed or limited in scope in case of catastrophic failure. No bailouts of banks or corporations.  Capitalism works because occasionally bad actors gets killed and fail.  Just look at the composition of the Dow Jones average 60 years ago to see how failure is essential in capitalism.
      Part 2 of "How to Fix the USA will be ideas to reduce Federal spending.  This will reduce government size and reduce corruption and address our fiscal crisis.

      Saturday, January 7, 2012

      Global Warming Extremism

      This author thinks it's important to continue gathering data and studying earth's temperatures, and we might want to start considering mitigating measures to deal with changing crop patterns and the possibility of rising ocean levels in coming decades.  But an immediate crisis, we do not have.   Some alarmists have worked hard to scare people to tears, but their credibility is finally on the wane.


      Here's where the fuss starts.  Carbon dioxide concentration is indeed rising from 320 parts per million to 380 parts per million over the past 50 years.  The concentrations are exceedingly small amounts; only 0.038% up from 0.032%.  To give you some perspective, my exhaled breath is 4.00% or 100 times more concentrated!

      The issue is that man is releasing about 7.3 gigatons per year in total carbon into the atmosphere.  But photosynthesis absorbs 1.7 gigaton/yr and the ocean is absorbing 2.2 gigatons/year.   This means that 3.3 gigatons/yr of carbon is accumulating in the atmosphere.  Ultimately the ocean will absorb all of that carbon given enough time (centuries).  To stop the rising accumulation, we must reduce carbon emitted by about 50%.  This amount would steady atmospheric concentration of carbon (not reduce it).

      And there is a slight warming of temperatures in our recent history--about 1 degree F (0.5 deg C) in 40 years.  It's worthy of continuing to study and modeling---now that we have satellite to measure global temperatures.  


      The data is to the right.  (People have noted the last 10 or so years of actual data and see little warming if any.  Models have predicted much higher temperatures, so science meets nature.)
        
      The hydrocarbon era might only last another 50 years.   During the next 50 years, it would be logical to suggest that the warming would be another 1 deg.Fahrenheit--the same as the last 50.

      What I'm saying is that there is no reason for panic-----yet. 

      I can say almost for sure that there will be no carbon capture and sequestration.  It's insanely expensive!  After decades of alarm-ism, there is still not one power plant with carbon capture in existence in the world--anywhere in the world!   The US has 10,000 power plants alone.  We don't even know exactly how best to do it.   I figure that it would cost $10 trillion dollars to electrify automobiles, build nuclear and wind power plants (the only options economically viable currently) to power the cars in the US alone.  Even this would only reduce CO2 emission by 50%.  This would have to replicated around the world just to steady carbon dioxide concentration in the atmosphere at a cost of $40 trillion. It just won't happen.  Period.  Remember, after $40 trillion, CO2 in the atmosphere would not decrease---it would remain elevated.  So, presumably temperature rises would stabilize at the higher level.

      It would make more sense to use US natural gas in a nationwide push for CNG buses and mass transit.  I believe that if buses came every 3 to 5 minutes, people would use them and relinquish personal automobiles.  This in combination with increased gasoline taxes would be very effective at curbing CO2 emissions.  This is much more practical.  Where's this debate in the media?   Where is our Energy Department on this subject?  Why do we even have an Energy Dept?  They can't do anything!

      It will take billions, not trillions to build seawalls or relocate coastal cities to higher ground.  I don't believe there is an immediate panic in terms of ocean levels but it's worth keeping an eye on.

      The cost of mitigating the effects of possibly higher temperatures (if they come to past) will be infinitely less costly than carbon capture and sequestration.  Where's this debate in the media? 

      Wednesday, January 4, 2012

      Income Tax Demagoguery; Who Pays US Income Taxes

      This blogger is sick and tired of the demagoguery regarding "the rich" not paying their "fair share" of US income taxes!   IRS data shows that "wealthy" people pay an overwhelming amount of taxes (the top 10% paid 70% of the total taxes for last available data analyzed in 2009).  The reality is that the US Income Tax code is strikingly progressive!  The bottom 50% pay only a few percent.  If anything, the bottom 50% are not paying their fair share!  Much of the bottom 50% actually have a negative tax rate as they receive government benefits.

      Here's the data.  It's interesting that the tax income tax collected, regardless of top marginal rates or capital gain rates has historically run about 14% (not including social security).  From the  IRS Study of Tax Progressivity (which has nice graphs) the following is a graph of various tax rates and average collection rates from 1970 to 1996. 


      The average tax rate is nearly steady at 14%.    I believe that this doesn't includes Social Security withholding taxes.  The next graph shows the graph for tax rates by income percentiles.  The data is only to 1996 but recent data looks similar (but very difficult to compare apples to apples from the different sources). 

      Tax collections remains relatively constant or increasing (14% of a normally rising GDP).  IT'S GOVERNMENT SPENDING THAT'S OUT OF CONTROL!   When government spending is 24% of GDP and taxes collected are 14%, then that's why we have a 1.5 Trillion dollar deficit (which is about 10% of GDP).


      From a Tax Foundation analysis of IRS data, in 2009 the top 1% earns $343,900, the top 10% earned $112,100 (Adjusted Gross Income).     That same year the top 1% paid 24% and the top 10% paid 18%.    The top 10% paid 70% of the income tax paid in 2009;  a bit higher than previous decades.  The bottom 50% paid only about 2% in 2009.    That's progressive!  I don't mind removing all income tax deductions for more affluent Americans, but the bottom 50% should probably pay more tax!  The lower income (lower middle to middle class) earn most of the income (see below).  They are not paying their fair share!  (The bottom 50% is paying 3, 4 or 5% in social security taxes, so we have to add that to that group's taxes to take that into account).

      Here's the income distribution out of interest:


      Warren Buffett has done a disservice to the nation with regard to our nation's discussion of tax and tax reform in his recent comments when he comments that he paid less tax as a percentage than his secretary.  What he doesn't tell you is that the billlionaire pays himself a paltry $100,000 salary and much of his income is long term capital gains which is taxed at 15%.   He doesn't mention how much his executive secretary makes--that secretary might make $300,000.  We don't know because his doesn't say.   To base our nation's tax policy on one person's (or a small number of cases) tax circumstances is ridiculous.  That why I'm presenting the data to correct some common misperceptions. 

      I agree with the idea of tax reform and reducing/eliminating deductions for wealthy or all people, For instance, why should the nation subsidize housing for many people (by allowing mortgage interest deductions)?  I'd say to get rid of all deductions.   But I'm also in favor of broadening the tax base to the bottom 50%.   My motto is "you can't vote if you don't pay taxes".  This safeguards the nation from the lower 50% of tax payers voting in politicians that demagogue (mislead) the public to "soak the rich"----which is exactly what we have with Obama the Populist in power.   Flat taxes of 15% would fix that (above a certain threshold income).

      Tuesday, January 3, 2012

      Shale Gas And Hydraulic Fracturing: What Is It And What's The Risk?

      The short answer as to the question of well fracturing and risk to surface or domestic waters is that there's not much risk, if any at all. 
       
      Usually these targeted shale beds are from 4,000 to 13,000 feet (1200 m to 4000 m) below the surface.  A well is drilled through the zone, the casing is set and sealed with concrete and perforated into the target shale zone.  If enough surface water pressure is applied, the rock near the perforations will crack open and the crack will propagate as more water is pumped.   The water is treated with mostly inert chemicals mainly to suspend proppant (sand or silica) so that it flows into the cracks.  Once the pumping stops, the fractures will attempt to close but the proppant holds open the crack. The proppant material is coarse enough to allow gas or oil to subsequently flow through the crack and into the well.   Even though hydraulic fracturing has been done for more than 40 years, a newer development is that wells have extended horizontal sections in the gas- or oil-bearing shale.  This allows for more perforations and more production per well.   
       There are a number of safeguards to protect surface or domestic water wells: 
      1. The well is designed with concentric casing strings, each sealed with cement, to isolate the producing zone from any zone above.  
      2. Fresh water sandstones, for domestic or utility water usually extend to 2000 feet depth (-2000 ft), but domestic and city water wells are usually much shallower at -200 to -1000 feet, so there's a big separation distance between hydrocarbon zones and fresh water zones. 
      3.  The fracturing (fracking) is done with very large quantities of fresh water that is mixed with gelling agents like guar gum or hydroxyethyl cellulose to make the water "thick"so that the proppant material (sand or silica) stays suspended in the water and flows into the newly created cracks or fractures. There are other additives but none toxic considering the quantities used.  Have a look at a report from the New York State's department of environmental conservation  NYS Marcellus Well Hydraulic Fracturing Considerations.
      The main problem for oil and gas companies is how to dispose of the water that is pumped into the well (finding sufficient water can be a challenge as well).  For the well to flow hydrocarbons, nearly ALL of the water originally pumped into the well must be produced back, usually back into large tanks or plastic lined basins.  Frac water is now mostly recycled now since it is a large volume (say 1 million gallons per well).  Ultimately spent fracturing water must be disposed of in a licensed (commercial) disposal well or other suitably designed sewer water treatment facilities.   

      This new disposal problem is causing some publicity of this major new hydrocarbon resource. The shear number of wells being drilled is also in the headlines. But the huge increases in oil and gas (mostly gas) reserves is a major boon to the energy security of the country and could potentially help our nation's chronic balance of payments problem.  More on this later!

      I hope this is helpful.  Remember, sometimes strange and unexpected things happen, and if it does, now you know that it won't be common or dangerous.  A well-informed public will not want to lurch toward some inappropriate policy due to a lack of knowledge of the subject.

      Monday, January 2, 2012

      Stock Market Valuation Relative to GNP

      One metric in assessing stock market valuation is to compare total stock market capitalization to GNP.  From Pragmatic Capitalist is a graph showing the history of stock market capitalization vs GNP:


      Apparently this is one of Warren Buffet's favorite valuation metrics and he considers a ratio below 80% a sign of good value.   But you can see that the market has had historically high valuations for 20 years now.  Notice a peak is in 2000, another lower peak in year 2007 and a yet lower peak now.  Today we're back over 100%.    To get back to historic valuations, the market would need to drop about 50% to get the ratio back to the historical range! Alternatively, the economy needs to double in size with stock prices remaining constant.

      I believe that we're in a secular bear market with a probable duration of 17 years from Year 1999 (similar to 1964 to 1981 where the market went nowhere for 17 years).    I also think there's a chance that the market will ultimately drop 60 to 70% to re-attain historic valuations in terms of the above ratio and dividend yields.

      Market falls of 70% appear to be common after speculative bubbles (Nasdaq in 2000, Japanese Stocks, China Stocks).   Interestingly, the Shanghai Composite index is approaching a 70% decline (not quite but headed that way) from a peak in 2007.   It's usually safe to "go into the water" once that magnitude of decline has occurred (except for Japan where the market has declined even further than 70%).   Have a look:

      Be careful out there!